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Avoid losing out on property currency fluctuations

How can you best avoid losing out on currency fluctuations when buying property abroad?

We’re purchasing a property in northern Spain, but with the Euro still strong against sterling, we don’t want to make the process any more expensive than it already is. How can you best avoid losing out on currency fluctuations when buying property abroad?

Laura Henderson advises:

Fluctuations in the exchange rate can significantly affect the sterling price of your overseas home, which makes finding the best exchange rate and methods of transfer a top priority. Many buyers avoid playing currency roulette by either tapping into existing savings or taking out a second mortgage on their UK residence. This is by far the cheapest and easiest way if you have equity in your current home, as long as you bear in mind currency conversion costs, as large deposits (on average 10 per cent of the property value) are required on foreign property purchases.

Changing pounds to foreign currency offers you two main options: team up with either a high-street bank or a foreign exchange specialist such as www.currenciesdirect.com, www.hifx.co.uk or www.caxtonfx.com. Specialist brokers invariably offer a better deal: more competitive rates, lower (if any) transfer fees and no commission charges. Because they solely deal in foreign exchange, you’ll also benefit from a number of exchange perks that most banks are unable to offer:

Spot Contract

This involves the buying of currency there and then at an agreed rate (valid for two days) usually for immediate delivery and can be beneficial if, for example, the rates offered by your broker are low when buying a certain amount of foreign currency. Minimum buying amount is usually between £2,000-5,000.

Forward Contract

This provides security against future exchange rate fluctuations. Once you have committed to purchasing a property, you’re exposed to currency fluctuations until you secure an exchange rate. A forward contract is effectively ‘a buy now pay later’ scheme, allowing you to ‘lock into’ a favourable rate for up to two years. The added benefit of this type of contract is flexibility-you can draw down some or all of your currency up to three months prior to the forward date that you’ve set in place, which is particularly useful if your completion date is pushed back.

Regular Payment Plan

This works best for those who have regular payments to make in that country such as a pension or mortgage payments. A direct-debit payment is normally set-up, with a minimum monthly transaction of £150 and the flexibility to up the amount as and when needed. Again, short-term competitive exchange rates can be fixed.

Orders

These are ideally suited to buyers who are not in a rush to transfer money or to buy currency, and who can wait for an optimum rate to save money. Stop Loss Orders enable you to fix a minimum rate at which the currency is bought or sold. If the exchange rate drops below this level, you are not affected. Limit Orders on the other hand, allow you to set an optimum exchange rate, which if achieved, enables you to purchase your currency.

As always, it pays to shop around. Choosing the right company can also be made easier by drawing up a basic check-list taking into account service levels, country-specific expertise and best combination of rates. It is also wise to request a personally signed dealer. If there is a rate that you desire, your broker will ensure that the rate is ‘booked’ when it is achieved. Brokers’ abilities to access ‘live’ exchange rates means that they should be able to undercut banks, which work to built-in margins. That said, if you’re a long-standing customer with one of the major high-street names, you’ve nothing to lose by putting in a call to see what’s on offer.

By Laura Henderson

Property journalist, columnist and author

Laura is a UK-based property journalist and author specialising in domestic and overseas markets. A regular contributor to the Financial Times, Sunday Express, Daily Telegraph and Homes Overseas magazine, she also edits a monthly property column for the Scotsman newspaper and is the author of several on-line investor guides for among others, Channel 4 Homes.